AAII Sentiment Survey: Both Optimism and Pessimism Below Average

Individual investors became both less optimistic and less pessimistic in the latest AAII Sentiment Survey. This is the first reading since last August to show both bullish and bearish sentiment below their historical averages at the same time.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 0.5 percentage points to 38.4%. This is the fourth time in five weeks that bullish sentiment is below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, spiked by 5.2 percentage points to 33.0%. This is just the second time since October 11, 2012, that neutral sentiment is above its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 4.7 percentage points to 28.7%. This is the first time in six weeks that bearish sentiment is below its historical average of 30.5%.

It has been unusual over the past few years to see both bullish and bearish sentiment below their respective historical averages on the same week. Though this week’s readings are only modestly below their respective averages, they are indicative of the mixed thoughts individual investors have about the length of the current rally. While seeing the major indexes trade near record or multi-year highs has prompted some AAII members to be more optimistic about the short-term direction of stock prices, others fret that stocks are overbought and are due for a pullback. Also impacting sentiment are mixed views about the pace of economic growth and ongoing frustration with Washington.

This week’s special question asked AAII members what influence the European sovereign debt crisis is having on their short-term outlook for stocks. About 40% of respondents said the debt problems were either causing them to be pessimistic or at least more pessimistic than they were six months ago. Nearly 32% of respondents said the crisis was not influencing their outlook for U.S. stocks, however. A few respondents said there is no change in terms of how the ongoing crisis is impacting their short-term outlook for stocks from last year.

Here is a sampling of the responses:

“I am concerned, but I hope it will not have a serious impact on the U.S. stock market.”

“I’m very cautious. I don’t trust the politicians or the central bankers.”

“The European debt crisis has been going on for some time and the longer it lasts, the less worried I become.”

“None. Since the eurozone crisis began a couple of years ago, I sold all of my foreign holdings.”

“Relative to last year, not much as has changed in my thinking. I was pessimistic then and nothing has changed my view now.”

This week’s AAII Sentiment Survey:

Bullish: 38.4%, down 0.5 percentage points

Neutral: 33.0%, up 5.2 percentage points

Bearish: 28.7%, down 4.7 percentage points

*Due to rounding, the numbers displayed above add up to 100.1%. If more decimal points were displayed, the numbers would add up to 100%.

Historical averages:

Bullish: 39.0%

Neutral: 30.6%

Bearish: 30.6%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.) The survey and its results are available online at: http://www.aaii.com/sentimentsurvey